Item 5.0
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Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers
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On
October 9, 2017, Sun BioPharma, Inc. (the “Company”) entered into second amendments (collectively, the “Amendments”) to the previously disclosed employment agreements, as amended (the “Agreements”), with our Executive Chairman, Michael T. Cullen, M.D., M.B.A., our President and Chief Executive Officer, David B. Kaysen, and our Chief Financial Officer, Scott Kellen, each of whom is an executive officer of the Company (collectively, the “Executives”), and our Chief Medical Officer, Suzanne Gagnon, M.D. (together with the Executives, the “Employees”). Dr. Cullen, Mr. Kaysen and Dr. Gagnon are also current members of the Company’s Board of Directors.
For Dr. Cullen, Mr. Kaysen and Dr. Gagnon, the Amendments established new annual base salaries representing a 25% reduction from prior levels, each effective as of October 1, 2017. Mr. Kellen
’s annual base salary remained unchanged. Each Amendment further discontinued the “accrued compensation” provision that was introduced with the prior amendments to the Agreements between the Company and each of the Employees dated as of September 12, 2016 (the “Prior Amendments”).
As a result of the Amendments, each of the Employees continues to be eligible to receive a cash payment in an amount equal to
the amount that previously accumulated under the “accrued compensation” provision through September 30, 2017. The cash payment would become due upon a change of control (as defined in the Agreements) or the Company’s issuance of equity securities (including any securities that are convertible into or exercisable for equity securities) resulting in gross cash proceeds of $10,000,000 or more (a “Qualified Offering”). If neither a change of control nor a Qualified Offering occurs on or before June 30, 2018, then the right to cash payment will be forfeited. The potential cash payments for Dr. Cullen, Mr. Kaysen, Mr. Kellen, and Dr. Gagnon are $410,136; $201,599; $97,208; and $385,036, respectively.
If, on or before June 30, 2018, the Company closes an underwritten public offering of its securities that include shares of common stock
(whether or not such offering is a Qualified Offering), then each of the Employees will, in lieu of cash payment, instead receive one or more equity awards under the Company’s 2016 Omnibus Equity Incentive plan (the “Plan”). The equity awards would be in the form of an option to purchase shares of common stock and a potential additional award of shares of common stock. Pursuant to the Amendments, each Employee has agreed to automatically waive their rights to the cash payment discussed above in exchange for the equity awards. The number of shares underlying the potential stock option will be determined at the time the Company closes an underwritten public offering and is to be based on the amount of each Employee’s potential cash payment amount (identified above) divided by the value of an option to purchase a single share of common stock determined using a Black-Scholes option valuation model. The exercise price for each option award will equal “fair market value” as of the grant date determined in accordance with the Plan. If the number of shares underlying the option award is limited by the Plan, then the remainder will be issued in the form of a stock award.
The descriptions in this report of the material terms and conditions of the foregoing compensatory arrangements with the Employees are qualified by the text of the Amendments, copies of which are filed as Exhibits
10.1, 10.2, 10.3 and 10.4, and each of which is incorporated herein by reference.